Which of the following correctly describes a wage-price spiral?
A) An increase in nominal wages causes inflation, and inflation causes workers to demand even higher wages in order to keep their real income constant. This cycle can repeat itself.
B) An increase in real wages due to growth in worker productivity causes inflation, which in turn increases worker productivity.
C) A decrease in prices causes workers to demand higher wages, which in turn puts additional downward pressure on prices.
D) None of the above.

Question

Quizplus · Accepted Answer

A wage-price spiral is a cycle of inflation caused by an initial increase in nominal wages. As wages increase, prices of goods and services also increase to keep up with the increase in labor costs. This creates additional inflationary pressure, leading workers to demand even higher wages to maintain their real income. This cycle can repeat itself, driving prices and wages up even further.

Which of the Following Correctly Describes a Wage-Price Spiral